Get a Cheap Car Loan
Cheap auto loans are a car buyer's dream. Fortunately, getting an affordable car loan is absolutely possible; however, there are a few red flags to keep your eye on.
How to Get a Cheap Car Loan
Before you start shopping around, check out some of these tips for getting cheap auto loans.
Understand Your Loan Budget
Once you understand your loan budget, you'll better understand how to shop around for auto loan rates you can afford.
Several factors go into considering your loan budget. For example, think about:
- The vehicle's retail value.
- Kelley Blue Book (KBB) is an excellent source for finding this information, and comparing each vehicles' retail costs.
- Estimated sales tax and interest rates.
- You won't know this information straight up front, but having an estimate can help you determine your budget.
- Your auto loan term.
- This is how long your auto loan will last, and affects your monthly payment size.
- The size of your down payment.
- Generally, bigger down payments mean more affordable auto loans.
- The trade-in value of your current vehicle.
- Again, KBB can help you determine this number.
Don't worry; you don't have to crunch all these numbers on your own. DMV.ORG provides a handy car loan calculator to help you.
Check Your Credit Score
All lenders check your credit score before offering you a loan; it's that simple. The better your credit score, the better your car loan rates.
Thus, you'll want to enter the bank, credit union, or dealership with a good handle on what you're working with, credit-wise.
Fortunately, you can check your credit score online using such companies as what the market refers to as “The Big 3": Equifax, Experian, and TransUnion.
Learn more about your credit score—including how to find it and even dispute any discrepancies—in our section on credit reports.
Look for Dealership Alternatives
In the past, getting auto loans from dealerships and their affiliated financial institutions was the norm; however, these days you can expand your options to include other banks and credit unions.
Getting car loans from banks and credit unions is much like getting any other kind of loan, and many will offer better auto loan rates than will dealerships -- especially any bank or credit union with which you have a personal relationship.
Talk with your bank or credit union representative about the kinds of interest rates they can offer you on an auto loan, and don't be timid about shopping online for affordable car loan rates.
Consider Your Down Payment
Generally, larger down payments mean smaller monthly payments, shorter auto loan terms, and better interest rates.
NOTE: As mentioned above, also consider the value of any trade-in vehicle you have; a trade-in vehicle plus a sizeable down payment will lower your monthly payments even more.
Again, you don't have to take the auto loan the dealership offers you; neither do you have to go with the car loan from the first bank you visit.
Take your business to several dealerships, banks, and credit unions, weigh the pros and cons of the car loan rates they offer you, and choose the most affordable auto loan for you. Sure, this will take some time, but in the end you'll wind up with the most affordable interest rates you can find.
Cheap Auto Loan Red Flags
Remember, “cheap" doesn't always mean “better." Check out just a few of the red flags to watch out for as you shop around for affordable car loans.
- Super low monthly payments. They might seem more affordable at first, but in the long run you could end up paying more in interest rates.
- Extremely long-term auto terms. Generally, the longer the auto term, the more money you ended up shelling out in the long run.
- Zero percent financing. Admittedly, this is a viable option for some buyers; however, most people either don't qualify or end up spending more money on the cost of the vehicle (which counteracts the benefits of a cheap car loan). Learn more on our section about zero percent financing.
A final word: If any of the cheap car loans you find seem too good to be true, take a step back and do some more research. Don't get yourself caught in a loan agreement that could hurt you in the long run.